Low Expectations Keep Builder Confidence in the Dumps

Even as measures of sales and traffic moved up, disappointment from a poor showing in sales this spring left builders unhopeful.

After a disappointing spring selling season, builder confidence is stuck in the dumps. The NAHB/Wells Fargo Housing Market Index—on which any reading below 50 indicates that the majority of builders surveyed see conditions as "poor" rather than "good"—stayed at 16 in May, the same level seen in six of the last seven months and lower than what analysts had predicted.

In keeping with the trend builders have been reporting all spring, traffic is still moving up, the index indicated. The component measuring prospective buyer traffic gained a point, coming in at a still-low 14.

Single-family sales also increased one point, rising to 16. But despite these upward movements, builders’ expectations for the next six months dropped two points to an eight-month low of 20.

The drop is likely the fallout of low spring sales numbers, which stubbornly defied hopes raised by increased potential buyer interest. And the problems keeping browsers from becoming buyers aren’t likely to dissipate any time soon.

“Asked to identify reasons that potential customers are holding back at this time, 90% of builders surveyed said clients are concerned about being able to sell their existing home at a favorable price, while 73% said consumers think it will be difficult for them to get financing,” David Crowe, chief economist at the NAHB, said in a press release today.

And unfortunately, even job growth—the factor many economists said would be the key to improvement for housing—has yet to produce results. “The market for new-home construction is weak everywhere, even in states that rank high in job growth,” Pat Newport, U.S. economist at IHS Global Insight, told Builder in an email.

Newport attributes the disparity to the trouble builders are experiencing in securing financing as well as profit margins being squeezed on both ends by falling home prices and rising costs.